It was interesting to read Tom Wood’s opinion piece about search agency mergers in NMA this week (excerpt below). He is referring specifically to UX and is also heavily plugging the benefits of his newly merged firm. But does he have a point? Will 2011 be the year of the merger?

I’ve recently been working with two search agencies who are looking for the yin to their yang (or vice versa of course). Neither are small in terms of the SEM space, but both have a need for specialist, broadly non-conflicting skills which the other can provide. Both these agencies see the benefits of a joint venture (if not a merger) as being able to pitch for and win business that they would otherwise not be able to secure. They clearly see the benefits of this as being able to offer an integrated search proposition in certain circumstances. Unlike Wood and Foolproof, they are not looking to exert more influence on the client or merely demonstrate size.

I think there will be mergers in 2011. From what I hear, these are likely to be take-overs (where larger buys smaller, specialist shops) or genuine mergers between mid-size search and digital agencies. Where we might see the most activity is in joint ventures, where search agencies let down their guard a little and seek to work more closely with their co-petitors to head off the media shops and the larger integrated groups. The CEO of one of these firms told me that “”[Andy] is able to create opportunities for potentially significant tranches of new business for an agency – as well as long term, sustainable growth – through this process of matching agency partners”. So clearly, these firms see cooperation and JVs as a means of sustaining growth. A new business strategy. We’ll see more this year I have no doubt.

We do hear that there is no such thing as a merger. It’s probably true, even in the most equitable arrangement. There’s quite an interesting M&A one pager on the subject of “Finding Synergy and Avoiding the Reefs” from Toolpack.info here.

Update 8/3/11: Just had a conversation with one of the top UK PR firms and they have raised exactly the same issues and have come to the same conclusion. At this time an outright merger/purchase looks inappropriate, but a JV or tie-up with a well matched online PR/social agency partner looks the right way forward. They’ve been looking for  quite a while, but now we’re applying some structure. Determine exactly what they want/need out of the digital partner (growth, defensive, specific skills) and we can begin to work out who the shortlist of partners should be. Happy to hear from social and online PR agencies who have experience of partnering with traditional PR firms and who have a proven model in place.

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The recent merger between Foolproof and Flow Interactive says something interesting about the outlook and ambitions of some companies. So why does rolling two mid-sized agencies into one make sense? Big doesn’t necessarily mean better, but it can be reassuring for clients embarking on large platform or channel programmes that their partner has got the depth and flexibility to deliver.

Bigger can also mean smarter: a large, specialist pool of expertise helps with problem solving. There’s a greater chance that someone has worked on a similar project before and might be able to apply methods that have worked well somewhere else. Bigger can also mean having more influence over decisions.

All this suggests 2011 might be the year in which smaller specialist agencies look to merge and exert more influence. In our sector [UX], I suspect the market will start to divide into those agencies that are happy to be tactical test labs for other people’s thinking and those with ambitions to inform their clients’ design strategy and marketing agenda. [Source - New Media Age "2011 will be a big year for small agency mergers", March 2011]